Let's Think

Credibility the biggest deficit of SA Inc – and that includes Gordhan

Finance Minister Pravin Gordhan pulled off an incredible balancing act with his Medium-Term Budget Policy Statement (MTBPS) last week, but unfortunately, together with the rest of South Africa Incorporated, his credibility is in tatters.

Minister Gordhan, as happened with his budget speech in February, received numerous accolades from the commentariat for a remarkable balancing act under very challenging economic and personal circumstances. In his speech on Wednesday he made all the right noises and promises and calls for a united national and trans-sectoral effort.

However, the figures that came in and with the MTBPS told keen observers in the market – and probably the international credit rating agencies – that he and the ‘national corporation’ he represents, failed to deliver on the promises and targets of February and earlier.

As far back as his MTBPS of 2013, Minister Gordhan identified the 2013 public sector wage bill’s 35% share of state expenditure as a problem. It has since grown to 40%.

In February, the GDP growth forecast was 0.9%. On Wednesday it came down to 0.5% – continuing the trend of the last number of quarters. Despite promises to the contrary, unemployment is still climbing and structural and policy reform expectations did not realise.

Mr Gordhan’s plans to sharpen the management of state-owned enterprises came to naught and brought him in conflict with man who appointed him in the first instance, President Jacob Zuma. They probably contributed to the onslaught on him by state institutions like the Hawks and the National Prosecuting Authority. If anything, the MTBPS indicated that he was forced to compromise on the dangerously expensive and corruption-prone nuclear power build programme.

Considering the deepening polarisation around him as a person and the fraud charges brought against him, intensifying student protests and protest leaders expressing “disappointment” in what he had to offer in the MTBPS, Mr Gordhan’s dream of a united effort is going to remain just that – a dream.

Credibility gap

“We just do not believe you will be able to deliver.” That seems to have been the message from the markets as he was still speaking and despite what initially looked like positive expectations.

In the period immediately preceding the delivery of the MTBPS the market apparently gave Mr Gordhan and his ‘corporation’ the benefit of the doubt and the rand strengthened by almost a full percentage point. But before he was halfway through his address and as the news broke that SA will miss its budget-deficit, debt and growth targets for the next three years, “… the rand fell off her chair and proceeded to slide to 1.65%” – as Dwaine van Vuuren wrote on Sharenet.

There was a massive exit of foreign investors from South African assets to the tune of R800 billion and, according to Sharenet, brought “the October tally of net bond outflows by foreigners to an eye-watering R12.15 billion”.

Against the background of what has been happening in the South African economy since the global financial crisis, and particularly since the February budget, the market probably read the MTMPS as ‘just more of the same old same old.’

Gordhan to be blamed?

It would, we think, be wrong to blame Minister Gordhan for this situation. From the reaction on his February budget we know that he has the right intentions. The problem is that in the present political construct and -power distribution it is impossible for him to turn his intentions into reality.

And it will also be a mistake to think the removal of President Jacob Zuma in itself will be enough to change the situation. It is way more complicated than just that.

The most important and fundamental structural change the country needs is not on the economic front. The all-dominating position of a single party (the ANC), which delivers all-dominating power to a single person or close clique surrounding him needs to be broken down.

Only the voters can do that. The current fracturing and disintegration of the ANC would also in the short term bring more uncertainties and turmoil rather than real progression toward a truly “united effort”.

The real turnaround might have to wait for the 2019 general election, we think.